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Analysts tune in to a set of strong but mixed signals

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LCDs may be encased in glass but that doesn't mean the market outlook for such devices is crystal clear. To the contrary, the crisper, sharper images flashed by advancing liquid crystal display (LCD) technology doesn't transfer easily into assessments of the market.

Analysts paint a medium-term picture for LCDs that is muddied by a number of contradictory signals ranging from lower revenue and a maturing market on one hand, to trends promising strong growth on the other.

Questions remain regarding whether producers of indium, which is essential to LCDmanufacture, can continue to capitalize on opportunities and how the metal may be impacted by the less-positive trends marking the current LCD market.

LCD desktop monitors count as one segment of the market that is already mature, according to Paul Semenza, senior vice president of Austin, Texas-based research and consulting firm DisplaySearch LLC.

Another sector approaching maturity is the sleek LCD TV segment, which continues to displace bulkier, space-consuming cathode ray tube (CRT) models. Small to medium-size LCDs can expect strong growth in the next few years, he said.

Semenza is less bullish on the overall revenue outlook for LCDs. He sees a dramatic slowdown in growth this year as prices decline due to economic softness and oversupply.

At the same time, Semenza expects plenty of positive developments, including continued growth for LCD notebook PCs and new applications in digital signage, a form of electronic display that is just now emerging and expanding rapidly. Add to that a general trend toward larger LCDs with heftier per-unit indium requirements.

"We've actually seen quite a bit of growth in 40-inch-plus TVs over the last year and a half," said Paul Gagnon, DisplaySearch's North American TV market research director. Fast forwarding to 2012, Gagnon expects about 35 percent of all LCD TV shipments to be bigger than 40 inches vs. only a half-percent share in 2004. The reason? Many LCD producers hadn't yet built the factories that could accommodate the large slices of glass used to produce the TVs. The shift occurred in 2006, when factories began specifically targeting 40-inch-plus screen sizes, DisplaySearch says.

"Perhaps the best news for material providers is that the area (size-wise) of displays produced is forecast to continue to grow rapidly for the next several years," Semenza said. "This is mainly a supply-side phenomenon, as TFT-LCD manufacturers continue to invest in ever-larger capacity factories."

This should be a reason for suppliers of the indium-tin oxide coatings used in making LCDs to celebrate—except that the slower LCD revenue growth Semenza expects for the near term could dampen revenue on the indium-tin oxide (ITO) side. The fact that revenue growth is significantly slower means that there will be intense pressure to lower the per-area cost of displays, which means material suppliers also would need to reduce prices.

"Right now we happen to be in a down cycle when the global economy is having a lot of problems," Gagnon said. He expects panel makers' profits and prices to experience some recovery by the end of 2009, when the current downturn goes into the "crystal cycle," an industry term for the erratic investment and growth pattern that has impacted LCD panel makers' profitability.

Gagnon pegs LCD TV growth at about 186 million units annually in 2012, up 75 percent from about 106 million units in 2008.

"The demand for LCD TVs is still peaking," said Abhigyan Sengupta, display analyst at San Antonio, Texas-based consulting firm Frost & Sullivan. "And the prices of LCDs have also fallen. TVs, PCs, laptops—they have all become more-or-less necessary commodities."

As LCD TV prices slide, those sets become increasingly available to emerging markets like Brazil and other parts of Latin America, China and India, Gagnon and Sengupta both noted. LCD TV shipments to China could reach nearly 34 million units by 2012 vs. just shy of 9 million units in 2007, Gagnon said.

A cooling in the growth rate of the LCD TV market opens the door to potential contenders, which could spell a reduction in indium-tin oxide use in the flat panel market, some analysts say. Competing technologies include electronic paper (e-paper) and organic light emitting diodes (OLEDs), which is "much, much, much, better than the LCD picture quality," Sengupta said.

OLEDs are used mostly in mobile phones and personal digital assistants (PDAs), he said, adding that both e-paper and OLED displays are thin and flexible partly because they don't require backlights like LCDs. Instead, they emit their own light.

"It's not completely true that you don't need a transparent electrode. Actually, you don't need it on both sides of the display because you don't have a backlight, so you don't need the conductive coating," explained Lawrence Gasman, principal analyst at Glen Allen, Va.-based technology research firm NanoMarkets LC. "You just need it on the front.

"I suppose if we were to move to OLED it would certainly cut ITO demand by half," he said. "Getting rid of the backlight is certainly interesting in terms of ITO."

Gasman believes that LCDs are "running out of steam" because manufacturers are close to pushing beyond the upper limits of the capabilities of their production facilities.

Meanwhile, Gagnon believes that the OLED TV still needs to muster broader support from TV manufacturers before it can flourish. OLED prices are too high for the mass market, he adds, predicting the technology will probably account for only 1 percent of the TV market share by 2012.

Indium-tin oxide may be the current "king" in the high-end conductive coating market, but LCD producers have never been completely happy with it, Gasman said. He likens indium, which enjoyed a peak in demand in the 1960s and '70s for use in nuclear power plants, to "marrying someone because he's the only guy around." ANDREA NIEM

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